Brokers' notes: Gold edges up in thin trade

Gold: Gold edged up in thin trade on Wednesday, with sentiment supported by high oil prices, lingering worries about the severity of the European debt crisis and a shortage of gold bars in Asia.

European finance ministers will discuss increasing the effective lending capacity of their financial rescue fund next week, EU sources said on Tuesday, as Portugal defied pressure to seek a bailout.

However, physical dealers said the price of gold could rise further as demand from jewellers and investors picked up in India and China, leading to tighter stocks for gold bars in Singapore and Hong Kong. Premiums for gold bars are at two-year highs.

Worries about inflation in China, the world's second-largest gold consumer after India, drove investors to gold, while purchases from jewellers also increased before the Lunar New Year in February.

The world's largest gold-backed exchange-traded fund, SPDR Gold Trust said its holdings slipped to 1,271.467 tonnes by Jan 11 from 1,272.682 tonnes on January 10

Euro

The euro made thin gains on Wednesday, extending this week's rebound but with limited ability to rise much as caution gripped the market ahead of debt sales by highly indebted euro zone countries.

Portugal is due to tap bond investors on Wednesday while Spain is seeking to sell up to $3.89 billion (Dh14.3 billion) worth on Thursday. Markets are keen to see if they can obtain funding at a sustainable cost or if they will be forced to turn to the European Union and IMF for help.

For now though the common currency is enjoying a reprieve after euro zone sources said the region's finance ministers are likely next week to consider the option of raising the effective lending capacity of the currency bloc's rescue fund as part of efforts to calm jittery markets.

This follows Japan's promise to support an upcoming euro zone bond sale and talk that the European Central Bank had bought debt to help stabilise markets.

US dollar index

As the euro recovered, the U.S. dollar index which tracks the performance of the greenback against a basket of major currencies, slipped 0.2 per cent to 80.63, off a five-week high around 81.313 set on Monday.

Versus the yen, the dollar was little moved at 83.27 yen though it held well above this week's low around 82.66, with gains in global stocks weighing on demand for the yen.

Meanwhile, the Australian dollar hit a fresh one-month low around $0.9803 though option triggers at $0.98 helped it limp back to $0.9860.  Mounting worries that massive floods in northeast Australia could hamper growth were taking a toll on the Aussie, knocking it further from a 28-year high around $1.0250 set on December 31.

A Reserve Bank of Australia board member, was quoted in the Sydney Morning Herald as saying the floods could cut economic growth by up to 1 percentage point.   

Estimates by other economists were less grim, though, with many expecting the floods could at most knock 0.5 percentage point off growth.

Indian market and rupee

India's main stock index extended losses while the rupee dropped on Wednesday after November industrial growth slowed to 2.7 per cent, much below the 6.6 per cent median market estimate.

The benchmark 10-year bond yield and the most-traded 8.08 per cent 2022 bond both eased 1 basis point each, to 8.19 per cent and 8.18 per cent respectively.

Rupee is now quoting at 45.16/17 per dollar, from 45.14 before the data. The main share index extended losses to as much as 0.6 per ent from being just marginally lower before the data.

Oil

Oil prices steadied above $91 on Wednesday following a sharp rally the previous session, supported by the shutdown of two North Sea oil fields and the continued outage of a key Alaskan pipeline. 

Norway's oil and gas producer Statoil shut its Snorre and Vigdis fields, which jointly produce about 157,000 barrels per day, after a gas leak and did not know when they would be restarted.

The disruptions came amid efforts to restart the Trans Alaska Pipeline System's main oil pipeline, which was closed on Saturday by a leak, forcing the shutdown of over 600,000 bpd of output - nearly 12 per cent of US domestic oil production.

The pipeline was expected to restart this week. US heating demand this week was expected to be 10.5 per cent above normal, the National Weather Service forecast. 

Source: Richcomm Global Services, DMCC, Dubai; www.richcommglobal.com